Q1 GDP Revised Lower As Personal Spending Tumbles, But Core PCE Heats Up

After sizzling ever higher for the first two readings of Q1 GDP, the 2nd and final (for now) revision of Q1 GDP came in a hair weaker than expected, dropping from 3.2% to 3.1% (3.08% to be precise), below the 3.2% consensus estimate, if still well above the 2.2% annualized GDP print in Q4 2018.

The unrevised GDP growth rate reflected upward revisions to business investment, exports, and state and local government spending. These were offset by downward revisions to consumer spending and inventory investment and an upward revision to imports.

The key driver behind the downward revision was mostly the sharp drop in personal consumption/spending, which was revised sharply lower from 0.90% to 0.62%, and far below the 1.7% print in Q4. On an annualized basis, personal consumption dropped to 0.9% from 1.3% as of the 2nd revision, and below the 1.3% expected.

This drop however was offset by a rebound in Fixed Investment, which was revised higher from 0.18% in the prior revision to 0.53%. Nonresidential fixed investment, or spending on equipment, structures and intellectual property rose 4.4% annualized in 1Q after rising 5.4% prior quarter.

The other components of GDP were generally in line with the prior revision:

  • Private Inventories came at 0.55%, vs 0.60% in the 2nd revision
  • Net exports was revised modestly lower from 0.97% to 0.90%
  • Government consumption was revised higher from 0.42% to 0.48$.

The components summarized visually:


However, offsetting the modest drop in GDP, was the increase in trhe Fed's preferred inflationary measures, as the GDP price index rose 0.9% in 1Q after rising 1.7% prior quarter; it rose from 0.8% in the last revision; meanwhile, core PCE q/q rose 1.2% in 1Q after rising 1.8% prior quarter, but more importantly it printed above the 1.0% expected, which was also the growth reported in the prior revision.

In other news, Q1 Corporate Profits Fell 2.6% Q/q, after falling 0.4% in prior quarter.

According to the BEA, Y/Y corp. profits were up 3.4% in 1Q after rising 7.4% prior quarter.  Financial industry profits increased 0.3% Q/q in 1Q after falling 5.6% prior quarter, while Federal Reserve bank profits down 11% in 1Q after falling 7.2% prior quarter. Finally, nNonfinancial sector profits fell 4.9% Q/q in 1Q after rising 1% prior quarter.

Overall, a mixed print, with the modest downward revision offset by the increase in core PCE. In any case, since this number is very backward looking, it is unlikely to have any impact on Fed rate cut thinking.